Chegg 2013 Annual Report Download - page 108

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Impairment of Acquired Intangible Assets and Other Long-Lived Assets
We assess the impairment of acquired intangible assets and other long-lived assets at least annually and
whenever events or changes in circumstances indicate that the carrying amount of such assets may not be
recoverable. Recoverability of assets to be held and used is measured first by a comparison of the carrying
amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, an impairment loss would be recognized. When measuring the recoverability of
these assets, we will make assumptions regarding our estimated future cash flows expected to be generated by the
assets. If our estimates or related assumptions change in the future, we may be required to impair these assets.
During 2012, we determined that we would not integrate content related to the Notehall and Student of Fortune
services into our connected learning platform. Our impairment analysis resulted in an impairment charge of
$0.6 million, with $0.2 million recorded in technology and development and $0.4 million recorded in sales and
marketing. As of December 31, 2013 and 2012, we had intangible assets, net, of $3.3 million and $6.7 million,
respectively.
Goodwill
Goodwill represents the excess of the aggregate purchase price paid over the fair value of the net tangible
assets acquired. Goodwill is not amortized and is tested for impairment at least annually or whenever events or
changes in circumstances indicate that the carrying value may not be recoverable. We have determined that we
operate as one reporting unit and have selected October 1 as the date we perform our annual impairment test. We
first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill
impairment test. We are not required to calculate the fair value of our reporting unit unless we determine, based
on a qualitative assessment, that it is more-likely-than-not that the fair value is less than our carrying amount. If
the fair value is less than the carrying value, we perform a two-step quantitative goodwill impairment test. The
first step of the impairment test involves comparing the fair value of the reporting unit to its net book value,
including goodwill. If the net book value exceeds its fair value, then we would perform the second step of the
goodwill impairment test to determine the amount of the impairment loss. When performing the valuation of our
goodwill, we make assumptions regarding our estimated future cash flows to determine the fair value of our
business. If our estimates or related assumptions change in the future, we may be required to record impairment
loss related to our goodwill. We have not recognized any impairment of goodwill since our inception. As of
December 31, 2013 and 2012, we had goodwill of $49.5 million.
Stock-Based Compensation
We measure and recognize compensation expense for all stock-based awards made to employees, directors
and consultants, including stock options, restricted stock awards, RSUs, and our employee stock purchase plan,
or ESPP, shares based on estimated fair values. Prior to our IPO in November 2013, the fair value of our stock
options, restricted stock awards and RSUs included an estimation of the fair value of our common stock.
• The fair value of stock options is estimated at the date of grant using the Black-Scholes-Merton option
pricing model, which includes assumptions for the expected term, risk-free interest rate, expected
volatility and expected dividends. We expense stock-based compensation, adjusted for estimated
forfeitures, using the straight-line method over the vesting term of the award. There was no capitalized
stock-based compensation expense as of December 31, 2013 and 2012.
• The fair value of restricted stock awards is determined based upon the fair value of the underlying
common stock at the date of grant. We issued unvested restricted stock to employee stockholders of
acquired companies in 2011. As these unvested awards are generally subject to continued post-acquisition
employment, we have accounted for them as post-acquisition stock-based compensation expense.
• The fair value of RSUs is determined based upon the fair value of the underlying common stock at the
date of grant. Our outstanding RSUs vest upon the satisfaction of both a time-based service component
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